CFD trading examples

See how CFD trading works in practice, with step-by-step examples on both long and short positions.

Are you ready to start CFD trading?

When you buy or sell a contract for difference (CFD), you are agreeing to exchange the difference in the price of a market from when you open your position to when you close it. At first glance, that can seem more confusing than a traditional trade – so here are some examples to guide you through opening and closing positions on BT and the FTSE 100.

Example: buying a share CFD

Say BT has an underlying market price of 314.6p, with a sell price of 314.5, and a buy price of 314.7. BT’s next earnings announcement is fast approaching, and you expect it to be good news. You think the company’s share price will go up, so you buy 2000 share CFDs at 314.7. This is the equivalent of buying 2000 BT shares.

 

Because  CFD trading is a leveraged product, you don’t need to put up the full value of these shares. Instead, you only need to cover the margin, which is calculated by multiplying your exposure with the margin factor for the market you are trading.

So if BT has a margin factor of 20%, then your margin would be 20% of the total exposure of your trade (2000 share CFDs x 314.7p = £6294), or £1258.80.

Buying a share example

If your prediction is correct

When BT announces its results, it’s clear the company has had a successful quarter – and as you predicted, its share price climbs. You decide to close your position when it reaches 354.3, with a buy price of 354.4 and a sell price of 354.2.

You reverse your trade to close a position, so you sell your 2000 CFDs at a price of 354.2.

To calculate your profit, you multiply the difference between the closing price and the opening price of your position by its size. 354.2 – 314.7 = 39.5, which you multiply by 2000 CFDs to get a profit of £790.

Just remember that you’ll also need to pay a commission fee, any overnight funding charges, and capital gains tax on your profits.

Calculating profit from your share CFD

If your prediction is wrong

BT’s results are worse than expected, and its share price immediately falls. You decide to cut your losses and sell your 2000 CFDs at 288.7.

Your position has moved 26p against you, meaning you make a loss of £520 (in addition to your commission fee, and any overnight charges).

Calculating loss from your share CFD

Buying BT: full trade details

 

Example CFD trade

Underlying price

314.6

Sell / buy price

314.5 / 314.7

Deal

Buy at 314.7

Deal size

2000 CFDs

Margin

£1258.80

Stamp duty

None

Commission

£20

Other potential charges

You’ll have to pay CGT on any profits you make, and an overnight funding charge if your position is open over more than a single trading day.

Closing price

Sell at 354.2

Sell at 288.7 

Calculation

354.2 – 314.7 = 39.5

2000 CFDs * 39.5 = £790

790 - £20 commission = £770

288.7 – 314.7 = -26

2000 CFDs * -26 = -£520

-£520 – £20 = -£540

Profit / loss

£770 profit

£540 loss

 

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Example: selling an index CFD

The FTSE 100’s underlying price is 7400.5, and our price is 7400.0 to sell or 7401.0 to buy.

You anticipate that an upcoming interest rate announcement from the Bank of England (BoE) will negatively impact the index, so you decide to sell five contracts (the equivalent of £50) at 7400.0. The FTSE 100 has a margin factor 5%, so you need to deposit ((£50 x 7400) x 5%) £18,500 as margin.

If your prediction is correct

The announcement is a disappointing one, and the FTSE drops to 7353.5, with a buy price of 7354.0 and a sell price of 7353.0. You’re ready to secure your profit, so you buy five contracts at 7354.0.

Because this is a short position, you minus the closing price (7354.0) from the opening price (7400.0) of your position to calculate profit, before multiplying by its size (5 contracts x £10 per contract = £50).

7400 - 7354 = 46 points, which you multiply by £50 to give you a profit of £2300. You don’t need to pay commission on indices CFD trades, as our costs are included in the spread – but you will still have to pay any overnight funding charges and CGT.

Calculating profit from your index CFD

If your prediction is wrong

The announcement proves positive, and it gives the index a boost. You decide to cut your losses when the market hits 7429.5, with a buy price of 7430.0.

The price has moved 30 points against you. This gives you a loss of £1500, as well as any overnight funding charges.

Calculating loss from your index CFD

Selling the FTSE: full example trade details

 

Example CFD trade

Underlying price

7400.5

Sell / buy price

7400.0 / 7401.0 

Deal

Sell at 7400.0

Deal size

5 contracts (at £10/contract)

Margin

£18,500

Stamp duty

None

Commission

$0

Other potential charges

You’ll have to pay CGT on any profits you make, and an overnight funding charge if your position is open over more than a single trading day.

Closing price

Buy at 7354.0

Buy at 7430.0

Calculation

7400 – 7354 = 46

50 * 46 = £2300

7400 – 7430 = -30

50 * -30 = -£1500

Profit / loss

£2300 profit

£1500 loss

 

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Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money. Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.